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Europe lays out antitrust case against Amazon's use of big data

Natasha Lomas
·11-min read
Amazon fulfilment center in Sosnowiec, Poland on 13 May, 2019. The fifth Amazon fulfilment center in Poland is built in the Upper Silesia region. The property totalling 135,000 sqm is built on a 21-hectare site near Panattoni Park Sosnowiec. Amazons fulfilment centre in Sosnowiec is adapted to the high-bay storage system and dedicated to the distribution of shoes and clothes in Western Europe. (Photo by Beata Zawrzel/NurPhoto via Getty Images)
Amazon fulfilment center in Sosnowiec, Poland on 13 May, 2019. The fifth Amazon fulfilment center in Poland is built in the Upper Silesia region. The property totalling 135,000 sqm is built on a 21-hectare site near Panattoni Park Sosnowiec. Amazons fulfilment centre in Sosnowiec is adapted to the high-bay storage system and dedicated to the distribution of shoes and clothes in Western Europe. (Photo by Beata Zawrzel/NurPhoto via Getty Images)

The European Commission has laid out a first set of antitrust charges against Amazon focused on its dual role as a platform for other sellers but also a retailer itself on its own platform -- and its cumulative use of third party merchant data to underpin Amazon's own retail decisions.

Competition chief Margrethe Vestager said its preliminary conclusion is the ecommerce giant has abused its market position in France and Germany, its biggest markets in the EU, via its use of big data to "illegally distort" competition into online retail markets.

"We do not take issue with the success of Amazon. Or its size. Our concern is very specific business conduct which appears to distort genuine competition," she said at a press conference announcing the formal charges.

The action stems from a 2015 sectoral ecommerce enquiry carried out by the bloc's competition division. The Commission subsequently announced a formal investigation of Amazon's use of data from sellers on its platform in July last year, though it had begun looking into concerns about whether third party sellers were being placed at a data-disadvantage by the ecommerce giant as far back as 2018.

As part of the investigation, EU regulators obtained a massive data set from Amazon -- covering over 80M transactions and more than 100M product listings on its European marketplaces -- to analyse how its business uses merchant data.

"Amazon is data driven. It's a highly automated company -- where business decisions are based on algorithmic tools," said Vestager. "Our investigation shows that very granular, real-time business data relating to third party sellers' listings and transactions on the Amazon platform systematically feed into the algorithm of Amazon's retail business. It is based on these algorithms that Amazon decides what new products to launch, the price of each individual offer, the management of inventories, and the choice of the best supplier for a product."

The competition chief said its preliminary concern is thus that third party sellers are unable to compete on the merits as a result of the big data advantage Amazon gleans from its access to third party sellers' data.

"Amazon has, for example, access to data on the number of ordered and shipped units of sellers' products, revenues on the marketplace, the number of visits to sellers' offers, information relating to shipping -- including the past performance of the seller, the consumers' claims on the sellers' products including the activated guarantees. And Amazon gets this data from every seller, every listed product, every purchase on its platform," she said. "Our concern is not about Amazon retail -- about the insights that Amazon retail has into the sensitive business data of one particular seller. Rather they are about the insights that Amazon retail has about the accumulated business data of more than 800,000 active sellers in the European Union covering more than 1BN products.

"In other words this is a case about big data."

Vestager said the investigation has shown Amazon is able to aggregate and combine individual seller data in real time and to draw what she described as "precise and targeted" conclusions from it.

That capability gives is a huge advantage over individual sellers on its platform who do not have access to the same level of big data to help their business decisions, is the contention.

"Many retailers will have to invest heavily to identify products of interest and bring them to the consumers -- taking risks when they invest in new products or when choosing a specific price level. Our concern is that Amazon can avoid some of those risks by using the data that it has access to," added Vestager.

Reached for comment on the charges, an Amazon spokesperson sent this statement:

We disagree with the preliminary assertions of the European Commission and will continue to make every effort to ensure it has an accurate understanding of the facts. Amazon represents less than 1% of the global retail market, and there are larger retailers in every country in which we operate. No company cares more about small businesses or has done more to support them over the past two decades than Amazon. There are more than 150,000 European businesses selling through our stores that generate tens of billions of Euros in revenues annually and have created hundreds of thousands of jobs.

Amazon will now have a chance to respond to the charges, after which the Commission will assess the evidence and take a decision on whether it believes there has been an infringement of EU competition law. If it believes there has it has the power to order an end to infringing conduct and impose a fine of up to 10% of a company's annual worldwide turnover.

In the two markets EU regulators found Amazon to be dominant, with more than 70% of consumers in France and more than 80% in Germany who made online purchases bought something from Amazon in the last 12 months.

Vestager specified the Commission is defining the market as "platforms providing marketplace services" rather than more general retail.

Also today, the commissioner announced a second competition investigation into Amazon -- this one focused on the Buy Box and Prime loyalty program. Vestager said regulators decided to split the Amazon cases so an ongoing investigation into the Buy Box and Prime doesn't slow down progress on the big data probe.

Detailing concerns around Buy Box and Prime she said: "Looking into Amazon's data use revealed that Amazon may have set certain rules on its platform that artificially favors both its own retail offers as well as the offers of sellers that use Amazon's logistics and delivery services. For this reason we have decided to open a second investigation into these business practices."

The Buy Box appears on Amazon product listing pages -- letting Amazon users click to add a product directly to their shopping cart. This means the choice of seller for the product that appears in the box is a key detail.

"The Buy Box is essential," said Vestager. "It prominently shows you offers for one single seller of a chosen product with the possibility for the consumer to purchase it directly. So winning the Buy Box is crucial for the marketplace sellers as it seems that more than 80% of all transactions on Amazon are channelled through it."

She also said described it as "of the essence" for retailers to be able to sell their products under Amazon's Prime label, adding: "Amazon's Prime consumers are very important to sellers -- not only because they're a constantly increasing number but also because Prime consumers spend significantly more on Amazon than others would do."

"Our concern is that Amazon may artificially push retails to use its own related services," she said -- pointing to its logistics and delivery arms -- which "may potentially lock them deeper into Amazon's own ecosystem".

EU regulators will therefore be looking into "the potential effects" of the rules set by Amazon for the Buy Box and for Prime, per Vestager.

"We want to make sure that sellers that do not use the Amazon logistic and delivery program also have a chance to compete on the merits on Amazon's platform. We also want to make sure that retailers can shift to competing marketplaces without being locked into the Amazon ecosystem," she added.

While European regulators move forward with antitrust action related to Amazon's marketplace practices, the ecommerce giant is also in the antitrust crosshairs of US lawmakers.

Last month it was one of a number of tech giants called out in an antitrust report by the U.S. House Judiciary Committee. The report argues Amazon wields monopoly power over SMEs via its dominance of online retail -- which in turn enables it to "self-preference and disadvantage competitors in ways that undermine free and fair competition".

Amazon's response to the US committee's scrutiny was a fierce rebuttal -- saying it accounts for only a tiny fraction of global retail and isn’t even the largest US retailer by revenues. It also claimed its interests align with the third party sellers on its platform, denying there's any conflict of interests.

The ecommerce giant has similarly rejected the Commission's charges in its response statement today -- ignoring how EU regulators are defining the market in favor of pushing a claim that its business only accounts for 1% of the global retail market.

Professor Tommaso Valletti, a former colleague of Vestager who -- as chief competition economist in her department kicked off work on the Amazon case which has led to formal charges being laid out today -- suggested another argument that will likely be deployed to try to fend off the big data complaint is 'how is what Amazon's doing with merchant data any different to what European supermarket chains with their own private labels do?'

He argued that's a bogus comparison as European supermarkets don't have the same level of marketplace dominance over consumers in a given area (i.e. as Amazon does over marketplace services), and are also constrained by physical shelf space as Amazon isn't in what it displays to consumers.

"Amazon has the ability to show zillions of products (and learn) in ways that are just not comparable with anything among bricks and mortars," he told TechCrunch.

Making some further general comments on the Commission case, he added: "There’s lots of data that Amazon has and that are obtained from third party sellers. These data are not public: The amazing computational machine of Amazon can use this info to do lots of things, e.g. identify products it might profitably enter by itself etc. in ways that then kill competitors. Competitors might not have known the extent to which such data would be utilised or extracted, which is also a possible manifestation of the abuse."

He also pointed to Amazon having to correct prior evidence to a U.S. Congressional committee -- when Nate Sutton had claimed it did not use “individual seller data directly to compete” with such businesses."Amazon soon had to acknowledge that it uses “aggregated data” from independent sellers, but still without explaining how “aggregated” such data might be. So that’s a grey area they will fight over," Valletti added.

During today's press conference Vestager faced a number of questions about how the competition action against certain Amazon business practices fits in with ongoing work by the Commission to draft updated legislation for digital services and giants, and whether Amazon itself would be classed as a gatekeeper under the forthcoming Digital Markets Act (DMA) -- meaning it would be subject to a set of ex ante rules and obligations.

Vestager declined to offer much detail on the forthcoming legislation -- nor confirm whether Amazon would meet the criteria -- as she said the text has not yet been finalized, but she confirmed some provisions in the DMA will be related to data sharing.

"One of the main difference is obvious here... we have to prove dominance and then we look at the business behavior," said Vestager. "The point of the [DMA] regulation is to say that businesses that fulfil a number of quantitative and qualitative criteria are in the scope of the regulation -- and they have to fulfil a number of obligations, which we call the 'dos and the don'ts'. Some of them do indeed concern data and data sharing."

Discussing the timing of the Amazon case vs any wider political context, she said it has not been promoted nor held back in relation to goings on in the US such as the recent presidential election.

"There's now a much more global conversation about how to deal with the fact that some of the platforms seem to be either gatekeepers or defacto monopolists in a number of markets that are very important for the development of our economies. And in that global conversation of course Europe and the European Commission want to participate. On the cases themselves they will always rest on the evidence, the merits of the case, the case law. On that, of course, we never waiver."

In earlier cases the Commission brought against Amazon -- such as those related to eBooks -- Vestager said the tech giant had been very forthcoming to solve the issues at stake", noting too that while the settlement secured for eBooks had initially covered English and German language ebooks but ended up covering "almost every ebook with few exceptions".

"Some of the national competition authorities have had the same experience," she went on. "Finding issues where they had concerns -- preliminary conclusions -- where also Amazon has engaged in finding solutions."

"Obviously we believe that something is wrong. What will happen now remains to be seen because, as always, we will take on board the Amazon answer to our preliminary conclusions," she added.